You Are the Company You Keep

It is no secret that Rep. Jose Felix Diaz, the Republican candidate for the Florida State Senate (SD-40) special election occurring in a month, is — as he put it in a recently televised CBS-Miami…

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A steel man for NFT collectibles

But first, some straw men:

I searched high and low for a reasonable (read: not over-hyped) explanation for why collectible NFTs aren’t just ICOs 2.0, but ultimately came up empty.

… Which worried me. Some smart, credible people seem to be very bullish on NFTs. What do they see that I don’t?

After much observation and analysis, the following are my strongest arguments in favor of collectible NFTs. I hope that reading it helps you as much as writing it helped me.

A NFT collectible will retain value if a durable fiction is established around it.

To unpack that through examples:

It wouldn’t be very accurate to describe any of the above in terms of objective, intrinsic value. But subjective, eye-of-the-beholder preferences don’t really capture them either.

Instead, their value is primarily derived from the fact that other people believe them to be valuable.

By this argument, NFT collectibles tap the same mechanism of value as Bitcoin, baseball cards, fashion brands, and any other intersubjective fiction.

* USD durability is currently undergoing a stress test. 🤷

The bullish NFT collector talks about provenance, rare attributes, and empowering artists — all the while assuming a not-yet-durable fiction that such ownership represents any actual value.

The bearish NFT skeptic critiques the lack of intrinsic value, supply and demand, and the insanity of crowds — all the while ignoring the fact the same argument can apply to every intersubjective phenomenon.

Over time, the fiction of NFT value will be tested, just as Bitcoin’s was tested:

And depending how that all goes, its fiction might grow stronger, more widespread… Or it might shatter.

The following are few plausible narratives that support the former.

Everyone is thinking this, so we might as well start with it.

Conspicuous consumption takes place within the context of one’s social group. If the most prestigious people you know drive Bentleys, you’ll also want a Bentley. If your heroes and role models drive Teslas, you’ll be inexplicably drawn to owning a Tesla.

So as long as there are people who credit their newfound fortunes to crypto, there exists a relevant, sentimental audience for the earliest, most iconic of NFT projects. Perhaps we’ll look back on this style of artwork as symbolic of this era — the geek aesthetic, the profile picture aspect ratio, the ambiguously-ironic embrace of absurdity.

Collecting such pieces implies that you were early — that you had foresight. It marks you as an insider to an exclusive, tech-savvy, culture-savvy club. The geek elite. The crypto nouveau riche.

Even if this population of collectors only numbers in the 10s-of-thousands, its possible that a baseline of demand can be sustained. There aren’t that many buyers for fine art, either.

Today, we live in the golden age of subscriptions. We subscribe to software, to music, to movies, to a long tail’s worth of content and services.

But will that still be the case 10 years from now? Or will subscriptions themselves be replaced by even better business models?

NFTs allow creators and their customers to rewrite the rules and incentives in fascinating ways. For example:

Together, these combine the most interesting aspects of Patreon, Kickstarter, Substack, the stock market, airline points, mobile games, etc.

Sneakily, they can also nudge the mental classification of many purchases from “expense” to “investment.” And this is powerful pricing voodoo:

NFTs won’t replace all subscriptions… but for many “1000 true fans” use cases, it’s already painting a very compelling picture.

Celebrities are the super spreaders of culture and memes. So long as famous people are interested in NFTs, then NFTs will share their spotlight. This not only acts as free advertising, but also a grant of legitimacy — high grade social proof.

Between luxury brands, cosmetics, and sports attire— we have ample evidence that multi-billion dollar industries can rest on the shoulders of celebrity influence.

Who knows? Perhaps in imitation of their idols, a generation of crypto native teens will spend their allowances on the long tail of “designer” NFTs.

A centralized version of this has already happened in the closed systems of MMORPGs and virtual world games. Is is so hard to imagine that future high school status hierarchies could be (in part) determined by the rarity of your avatars?

At first glance, physical ownership might seem like a bulletproof, obvious measure. What could be more objective than physical possession of something — such as, say, owning land?

But consider the following: Who “owns” the sky above your land? Or the watershed below? What about the seeds of plants growing on your land that are carried away by the wind?

Once you start probing the boundaries, you realize that all “ownership” relies on a complex web of social norms, laws, precedence, and implicit assumptions.

Digital ownership is no different — just more abstract, less intuitive, with less precedence to draw upon. The nascent boundaries of digital ownership are currently being wrought in the territories of DRM, fair use, right to repair, parody Twitter profiles, etc.

Today, the fact that you control a cryptographic reference to a JPEG means very little outside a small group of true believers. But that’s not to say that some combination of future technology, legal precedence, and social norms won’t make that prophecy come true.

While writing this, I spent several evenings browsing OpenSea, exploring collections, taking in patterns, and trying to put myself in the shoes of a collector.

It was curious to observe that a part of me yearned to collect and to own these objects — despite being unconvinced of the strength of said ownership. I also noticed an intuitive, instinctual grasp for the qualities that others also deemed valuable.

Whether by luck, timing, or true innovation, NFTs have successfully tapped into some deep patterns of human nature. If its fiction were to become widely believed, then its market could be huge.

Against my better judgment, I found myself indulging in the idea of spending few fractions of an ETH on, of all things, a 3D bonsai tree.

This project is different than the others, I thought.

Anyone tired of pixel art, abstract geometry, and degenerate animals will be drawn to this…

There’s something about this theme and aesthetic that resonates with me…

The most sought-after combinations are already highly priced, but some attributes seem to have been overlooked…

There’s a lot of superstitious money in Asia. 8888 trees? Golden maple leaves? This could have legs!

I went to bed thinking about it.

And the next day?

I bought one.

Is it a souvenir? A research expense? A speculative investment? A FOMO-fueled lapse of judgment?

I’m honestly not sure.

You Are the Company You Keep

A steel man for NFT collectibles

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